MNI US OPEN - Biden, McCarthy Debt Ceiling Talks This Afternoon

NEWS

US (BBG): Yellen Warns US Paying Price as Negotiators Battle on Debt Limit

Treasury Secretary Janet Yellen warned that the US is already paying a price for its failure to raise the federal debt limit, as talks between the White House and lawmakers from both parties continued into a second week.“We have already seen Treasury’s borrowing costs increase substantially for securities maturing in early June,” Yellen said in a letter to congressional leaders Monday. That’s the time period by when the Treasury risks running out of sufficient cash for all federal obligations.

Biden's schedule shows the timing for Biden's meeting with McCarthy - due to take place in the Oval Office for ~90minutes at 1500ET/2000BST with POTUS, McCarthy, Schumer, McConnell and Jeffries in attendance. Face-to-face follows McCarthy's comments late yesterday: "We are nowhere near reaching a conclusion,” and ongoing staff-level meetings are “not productive at all.”

OIL (BBG): Oil Demand to Rise More Than Expected on China Rebound, IEA Says

Global oil demand will climb more strongly than previously estimated this year as a post-pandemic rebound in China beats expectations, the International Energy Agency said. World fuel consumption will increase by 2.2 million barrels a day in 2023 — about 200,000 a day more than forecast before — to a record 102 million as China’s demand hits an all-time high after scrapping anti-Covid restrictions, the IEA said in its monthly report.

OIL (BBG): Russia Hasn’t Made Its Pledged Crude-Output Cuts, the IEA Says

Russia hasn’t implemented its pledged crude-output cuts, with exports hitting a postwar high as Moscow seeks to boost energy revenue to fund military spending, according to the International Energy Agency, The Kremlin promised to cut production by 500,000 barrels a day in March and maintain the curbs for the rest of the year in retaliation for Western sanctions.

GERMANY (MNI): Germany Wants Tough Fiscal Stance To Contain Rates

German Finance Minister Christian Lindner said on Tuesday that European Union fiscal policies needed to be as “tough” as possible in order to prevent interest rates remaining elevated for a long period. (MNI SOURCES: Most At ECB See 4% Rate As Only Outside Chance)Lindner said he was preparing a 2024 German budget that would return the country to the provisions of its constitutional debt brake, suspended in the wake of the energy crisis provoked by Russia’s invasion of Ukraine last year.

SPAIN (MNI): 28 May Regional Votes to Signal Party Strength Ahead Of General Election

Three of Spain's autonomous communities go to the polls to elect their regional legislatures on 28 May. Given that this is a general election year, the outcome of the elections in Castilla-La Mancha, Aragon, and Extremadura will be scrutinised more closely than might usually be the case. In all three communities, PM Pedro Sanchez's centre-left Spanish Socialist Workers' Party (PSOE) governs either as a majority (Castilla-La Mancha, Extremadura) or at the head of a coalition (Aragon). However, latest opinion polling shows the PSOE having lost support in all three communities since the last election in 2019.

G7/CHINA (BBG): G7 Working on Deterring China Economic Coercion, US Envoy Says

Group of Seven countries are working on concrete ways to cooperate against economic coercion from China, US Ambassador to Japan Rahm Emanuel said just days ahead of the group’s summit. “Expect more than words and communiques on economic coercion — expect action,” Emanuel said in a tweet posted Tuesday. “G-7 members are developing the tools to deter and defend against China’s economic intimidation and retaliation.”

CHINA (BBG): China Cuts Commodities Output as Economic Recovery Disappoints

China’s faltering economy forced commodities producers to cut output in April from the previous month as consumption of raw materials continues to fall short of expectations. Although production of many items increased markedly from a year ago, that comparison is flattered by the impact on activity from the extended lockdown of Shanghai in the spring of 2022. The broadly weaker month-on-month figures suggest that China’s patchy economic recovery, borne out by a lackluster set of import data for April, has yet to ignite demand.

RBA (MNI): RBA Determined to Bring Inflation Down - May Minutes

The Reserve Bank of Australia is determined to bring inflation back to its 2-3% target and will do “what is required” to meet its goal, including further interest-rate increases, according to the May minutes released Tuesday. “Members reaffirmed the Board’s determination to do what is required to bring inflation back to target, while emphasising that it is still seeking to traverse the narrow path,” the minutes showed.

NEW ZEALAND (MNI): Budget To Focus On Post-Cyclone Repair & Cost-Of-Living Relief

PM Hipkins has said that the May 18 budget will be focussed on cost-of-living relief and recovery from Cyclone Gabrielle but will be "no frills". There also won't be any new taxes or tax cuts. The recovery cost of recent weather events are to be funded from both within the existing budget and debt issuance.

UKRAINE (BBG): Ukraine Says It Defeated ‘Exceptional’ Russian Missile Blitz

Ukraine said its air defense systems destroyed a Russian missile blitz overnight that included six Kinzhal hypersonic weapons targeted at the capital Kyiv. “It was exceptional in its intensity — the maximum quantity of missiles in the shortest period of time,” Kyiv city military administration chief Serhiy Popko said Tuesday on Telegram. “The enemy launched a complex attack from several directions simultaneously.”

DATA

GERMAN DATA (MNI): ZEW Expectations Slide in May

• GERMANY MAY ZEW CURRENT SITUATION -34.8 (FCST -37); APR -32.5
• GERMANY MAY ZEW EXPECTATIONS -10.7 (FCST -5); APR 4.1

The ZEW survey of deteriorated for a third consecutive month in May, with the expectations index falling a marked 14.8 points -10.7, outpacing consensus expectations of an approx. nine-point slide. ZEW expectations re-entered negative territory for the first time since December 2022, implying German financial market experts expect a worsening of economic conditions over the next six months, with a mild recession again on the table.

EUROZONE DATA (MNI): Q1 GDP Still at +0.1%, Employment Growth Strengthens

• EUROZONE Q1 PRELIM GDP +0.1% Q/Q (= FLASH); Q4 (EA19) -0.1% Q/Q
• EUROZONE Q1 PRELIM GDP +1.3% Y/Y (= FLASH); Q4 +1.8% Y/Y
• EUROZONE Q1 FLASH EMPLOYMENT +0.6% Q/Q; Q4 +0.3% Q/Q

The preliminary eurozone GDP data (second estimate) showed the bloc expanded by +0.1% q/q and +1.3% y/y in Q1, unchanged from the initial flash data. This follows the -0.1% q/q contraction in Q4 GDP. Detail on the main aggregates is due in the final release on June 8. Q1 euro area employment grew by +0.6% q/q, accelerating from +0.3% q/q in Q4 and posting the strongest growth since Q4 2021/Q1 2022 (also +0.6%). With the eurozone unemployment rate edging down to a fresh record low at 6.5% in March, today's data signals continued labour-market resilience, despite soft GDP.

UK DATA (MNI): Further Signs UK Labour Market Tightness Easing

• UK MAR ILO UNEMPLOYMENT RATE +3.9%
• UK APR CLAIMANT RATE +4%
• UK APRIL PAYROLLS FELL 136K TO 29.8 MLN- ONS/HMRC
• UK MAR AVE WEEKLY EARNINGS +5.8% YY
• UK MAR AVE WEEKLY EARNINGS EX-BONUS +6.7% YY

The UK unemployment rose in the three months to March and overall vacancies fell again to the lowest level since August 2021, data released Tuesday by the Office for National Statistics showed. Unemployment rose to 3.9%, despite the employment level of 16 to 64 year olds edging up to 75.9%.Although still well above pre-pandemic levels, closely watched overall vacancies in the economy fell to 1.083 million. The more timely HMRC payrolls data saw the number of employed people fall by 136,000 in the April.

CHINA DATA (MNI): China Apr Production Accelerates; Retail Sales Jump

• CHINA APR INDUSTRIAL OUTPUT +5.6% Y/Y VS MEDIAN +10.8% Y/Y
• CHINA APR RETAIL SALES +18.4% Y/Y VS MEDIAN +22.0% Y/Y
• CHINA YTD FIXED-ASSET INVESTMENT +4.7% Y/Y VS MEDIAN +5.7% Y/Y
• CHINA APR UNEMPLOYMENT RATE +5.2% VS MEDIAN +5.2%

China's economy continued to recover over the last four months with major economic indicators catching up quickly, data released by the National Bureau of Statistics on Tuesday showed. Industrial production increased 5.6% y/y in April, accelerating from March's 3.9% y/y increase, but weaker than the market consensus of 10.8% growth. The strong increase has helped push the January-April period industrial output, rising 3.6% y/y. Retail sales registered a 18.4% y/y jump in April – marking another peak since April 2021 – and exceeding last period's 10.6% y/y rise, but behind the 22% y/y consensus.

FOREX: GBP/USD Completes Post-Data Round-Trip

• GBP/USD has completed a round-trip to sit higher headed into NY hours despite a poor showing from the UK jobs market across April. The pair was initially pressured down to 1.2466 before bouncing sharply to narrow the gap with 1.2550.
• A wave of USD sales helps boost major pairs to fresh intraday highs mid-morning, with markets looking through the soft ZEW release to catch up with the pull lower in US yields overnight. A recovery off the lows in most equity futures markets also helping pressure the greenback.
• Volumes remain marginally below recent averages for this time of day across most major pairs - the outlier being GBP after the poor jobs data this morning - with activity just over 50% above the norm for 1000BST.
• Focus turns to Biden's looming schedule, with a debt ceiling focussed meeting with McCarthy due to take place in the Oval Office for ~90minutes at 1500ET/2000BST. The face to face follows McCarthy's comments late yesterday: "We are nowhere near reaching a conclusion,” and ongoing staff-level meetings are “not productive at all.”
• The April US retail sales report crosses later today, followed by industrial production and capacity utilization data. Meanwhile, Canadian CPI is expected to show a further slowdown in price pressures. Fed's Mester, Barr, Williams, Goolsbee and Logan make for a busy Fed speaker schedule, with ECB's Lagarde appearing at an awards presentation for former German Chancellor Merkel.

BONDS: Gilts the Outperformers After Soft Labour Market Data

• Gilts have been the biggest movers of the day with the curve bull steepening following this morning's soft labour market data. Bunds and EGBs followed gilts higher (and had already been a little higher after some softer Chinese data overnight).
• However, as risk sentiment has recovered somewhat and equity futures moved higher, gilts have moved a bit off their highs and Bunds have retraced much of the gilt-driven weakness.
• In terms of Eurozone data, Dutch GDP was soft and the German ZEW survey saw expectations disappoint but the current situation come in a bit better than expected. Most other data this morning has been largely in line with expectations.
• Today sees a Finnish 15-year auction as well as syndications from Belgium (20-year) and the UK (40-year).
  • Gilt futures are up 0.59 today at 101.04 with 10y yields down -6.1bp at 3.753% and 2y yields down -7.7bp at 3.738%.
  • Bund futures are up 0.35 today at 136.13 with 10y Bund yields down -3.3bp at 2.273% and Schatz yields down -2.0bp at 2.571%.
  • BTP futures are up 0.27 today at 115.27 with 10y yields down -3.5bp at 4.147% and 2y yields down -2.2bp at 3.295%.
  • OAT futures are up 0.36 today at 130.46 with 10y yields down -3.3bp at 2.848% and 2y yields down -1.4bp at 2.766%.

EQUITIES: E-Mini S&Ps Trading Above 50-Day EMA, Move Higher Will Open May 1 High

Eurostoxx 50 futures continue to consolidate. Price is trading above support at 4241.90, the 50-day EMA. The recent move down is considered corrective and the broader uptrend is intact. A resumption of gains would signal scope for a test of 4363.00, the Apr 21 high and a bull trigger. Clearance of this level would confirm a resumption of the uptrend. A clear break of the 50-day EMA is required to signal a top. S&P E-minis are unchanged and remain in consolidation mode. Price is trading above the 50-day EMA, which intersects at 4109.27. An extension higher would open key resistance and the bull trigger at 4206.25, the May 1 high. A break of this level would resume the bull trend that started Mar 13. Key support has been defined at 4062.25, the May 4 low. A move through this support would instead highlight a bearish threat.

• Japan's NIKKEI closed higher by 216.65 pts or +0.73% at 29842.99 and the TOPIX ended 12.33 pts higher or +0.58% at 2127.18.
• Elsewhere, in China the SHANGHAI closed lower by 19.75 pts or -0.6% at 3290.987 and the HANG SENG ended 7.12 pts higher or +0.04% at 19978.25.
• Across Europe, Germany's DAX trades higher by 23.7 pts or +0.15% at 15940.97, FTSE 100 higher by 15.15 pts or +0.19% at 7792.8, CAC 40 up 4.02 pts or +0.05% at 7422.23 and Euro Stoxx 50 up 7.57 pts or +0.18% at 4323.98.
• Dow Jones mini down 16 pts or -0.05% at 33382, S&P 500 mini down 0.75 pts or -0.02% at 4149.25, NASDAQ mini up 13.25 pts or +0.1% at 13481.25.

COMMODITIES: Gold Technical Conditions Bullish Despite Slight Dip Lower Tuesday

WTI futures remain below recent highs. The recovery that started May 4 appears to be a correction and the move higher has allowed an oversold trend condition to unwind. Initial resistance is at $73.93, the Apr 28 low ahead of $76.92, the Apr 28 high. On the downside, the recent print below $64.58, the Mar 20 low and a key support, reinforces a bearish theme. A clear break of it would confirm a resumption of the broader downtrend. Gold trend conditions remain bullish. The yellow metal has recently breached resistance at $2048.7, the Apr 13 high. This confirmed a resumption of the broader bull cycle and maintains the positive price sequence of higher highs and higher lows. Moving average studies remain in a bull-mode set-up. The focus is on $2070.4, the Mar 8 2022 high ahead of the all-time high at $2075.5, the Aug 7 2020 high. Key support is 1969.3, the Apr 19 low.

• WTI Crude up $0.18 or +0.25% at $71.31
• Natural Gas down $0.01 or -0.25% at $2.369
• Gold spot down $7.35 or -0.36% at $2009.05
• Copper down $4.35 or -1.16% at $371
• Silver down $0.22 or -0.92% at $23.8655
• Platinum up $2.09 or +0.2% at $1069.5